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Why can't an SAAS startup have 100% gross (not net) profit? Because they're paying $17 per year for their domain?

deleted 10y ago
[deleted]
logicallee 10y ago
Someone wrote this deleted comment, which I started replying to: > I'm having trouble envisioning what sort of SAAS startup's only operating cost is the price of their domain. I understand that "operating costs" (also development costs) are deducted only from net, not gross profit? In other words, if I buy a nail from a wholesaler for $0.25 and sell it to you for $1.00 I've made gross profit of $0.75 (because I subtract what I bought it for.) I thought my operating expenses weren't involved? By that metric, if I buy a license to resell a "wholesaler's" ebook (proxy product) or software license for $1 and sell it to you for $5, that implies gross profit of $4 (or 80%). On the other hand, if i had written the ebook or software myself and it costs me $0 to email it to you / email a license, I would make $5 gross profit ($5 from you plus $0 to generate a license key which I can do for free), yielding 100% gross profit. Isn't that what these words mean? btw since the comment had read "I'm having trouble imagining" and then got deleted, perhaps they did imagine some examples - could that poster share?
ohwello 10y ago
It's my impression that gross profit includes marginal costs, but not overhead. I can't speak for the author, but every SaaS company I have been involved with had marginal costs such as customer support. When you are a tiny company and these tasks are performed by founders you could perhaps roll these costs into overhead and claim 100% gross profit. But as a growing company it would become clear that you need to hire someone for every X customers.
- logicallee 10y ago
  But selling you a nail for $1 also has some potential support costs - so is it wrong to say that if I buy a nail for $0.25 and sell it to you for $1.00 that has gross profit of $0.75? But the average customer's support costs might be more than $0.75 -- so would you say that by buying for $0.25 and selling for $1.00 to you, it's actually a loss leader? (I'm really trying to get you to buy more expensive products from me)? Overall I would like confirmation if this is really what is meant. It doesn't seem to me that support costs would be taken out of gross profit - that is what I think would be taken out of net profits. . . But I'm sure accountants have well-defined rules on this so I would like to heir their take.

deleted 10y ago

[deleted]

Someone wrote this deleted comment, which I started replying to: > I'm having trouble envisioning what sort of SAAS startup's only operating cost is the price of their domain. I understand that "operating costs" (also development costs) are deducted only from net, not gross profit? In other words, if I buy a nail from a wholesaler for $0.25 and sell it to you for $1.00 I've made gross profit of $0.75 (because I subtract what I bought it for.) I thought my operating expenses weren't involved? By that metric, if I buy a license to resell a "wholesaler's" ebook (proxy product) or software license for $1 and sell it to you for $5, that implies gross profit of $4 (or 80%). On the other hand, if i had written the ebook or software myself and it costs me $0 to email it to you / email a license, I would make $5 gross profit ($5 from you plus $0 to generate a license key which I can do for free), yielding 100% gross profit. Isn't that what these words mean? btw since the comment had read "I'm having trouble imagining" and then got deleted, perhaps they did imagine some examples - could that poster share?

ohwello 10y ago

It's my impression that gross profit includes marginal costs, but not overhead. I can't speak for the author, but every SaaS company I have been involved with had marginal costs such as customer support. When you are a tiny company and these tasks are performed by founders you could perhaps roll these costs into overhead and claim 100% gross profit. But as a growing company it would become clear that you need to hire someone for every X customers.

logicallee 10y ago
But selling you a nail for $1 also has some potential support costs - so is it wrong to say that if I buy a nail for $0.25 and sell it to you for $1.00 that has gross profit of $0.75? But the average customer's support costs might be more than $0.75 -- so would you say that by buying for $0.25 and selling for $1.00 to you, it's actually a loss leader? (I'm really trying to get you to buy more expensive products from me)? Overall I would like confirmation if this is really what is meant. It doesn't seem to me that support costs would be taken out of gross profit - that is what I think would be taken out of net profits. . . But I'm sure accountants have well-defined rules on this so I would like to heir their take.